McKay sells two Southwark offices for £21.5m; VTS launches into UK

McKay Securities, the only south east and London focused Real Estate Investment Trust, has sold two adjoining office buildings on Blackfriars Road, London, to Barts Charity for £21.5m.

The deal on the offices opposite Southwark underground station represents an initial yield of 3.8%.

The larger 21,017 sq ft property at 203 Blackfriars Road was built in 1985. It was acquired by McKay for £3.9m in 1999 and occupied by Lloyds Bank until lease expiry in 2011. At that time, McKay carried out a refurbishment and pre-let the building to the Overseas Development Institute, which has 9.5 years left on its lease. The passing rent is £802,720 a year, equivalent to a headline rent of £41/ sq ft, with the potential for rental uplift at the next rent review in July 2017.

The smaller 2,027 sq ft property at 202 Blackfriars Road is a period building let to IT Training Rooms until December 2019, at a rent of £52,000 a year.

The sale price was 5.4% ahead of book value as at 30th September 2015, generates a profit on cost from the 2011 refurbishment of 105% and secures a surplus over the £7.4m combined historic cost of the buildings.

Simon Perkins, managing director of McKay, said: “The comprehensive refurbishment works repositioned 203 Blackfriars Road, enabling us to take advantage of the significant improvement in rental values in the Southwark market. Our pre-let underlined the appeal to occupiers, and the sale has released the value created from the refurbishment. The sale price is a reminder of investor appetite for quality product on longer leases with reversionary potential.

“We will recycle the sale proceeds into refurbishment and development projects within our portfolio, and new acquisitions.”

Savills acted for McKay and Gryphon acted for Barts Charity.